December 09, 2009 09:00 PM UTC

Paul Volker puts the wood to the world's bankers

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• by: Danny the Red (hair)

http://business.timesonline.co…

Paul Volcker, former Chairman of the Federal Reserve, slayer of inflation, and the father of prosperity, figuratively grabbed the banking world by the collar and shook them.

One of the most senior figures in the financial world surprised a conference of high-level bankers yesterday when he criticised them for failing to grasp the magnitude of the financial crisis and belittled their suggested reforms.

Paul Volcker, a former chairman of the US Federal Reserve, berated the bankers for their failure to acknowledge a problem with personal rewards and questioned their claims for financial innovation.

On the subject of pay, he said: “Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate.”

As bankers demanded that new regulation should not stifle innovation, a clearly irritated Mr Volcker said that the biggest innovation in the industry over the past 20 years had been the cash machine. He went on to attack the rise of complex products such as credit default swaps (CDS).

“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth – one shred of evidence,” said Mr Volcker, who ran the Fed from 1979 to 1987 and is now chairman of President Obama’s Economic Recovery Advisory Board.

Politicians need to be talking about this.  Senators need to be talking about this.  The TARP was successful in staving off a banking collapse, but if we do not reform the system we will be right back here 15 years (the normal frequency of major banking collapses pre Glass-Stegal).